South African Retailer Woolworths Gains as Wins Customers

Woolworths Holdings Ltd., the South African food and clothing retailer that bought David Jones Ltd. of Australia for $2 billion, said it gained market share in a tough economy, boosting the stock as much as 2.6 percent.

Diluted earnings per share rose 9.5 percent to 3.63 rand ($0.34) in the 52 weeks ending June 29, as sales gained 13 percent to 39.9 billion rand, the Cape Town-based company also said today in a statement.

Most South African retailers are struggling as high unemployment and inflation force shoppers to cut down on purchases. Woolworths won customers and expects to be less affected by South Africa’s sluggish economy than competitors due to its focus on high-end consumers, Chief Executive Officer Ian Moir said at a presentation in Cape Town.

“It’s been a tough market, lot of discounting, lot of promotion from the competition,” he said. “We are really encouraged by the way our clothing business is moving.”

The shares advanced 2 percent to 79.06 rand at the close in Johannesburg, extending gains over the past 12 months to 32 percent.

Retail sales were unchanged in June, the worst performance since December 2009. The South African Reserve Bank raised its benchmark interest rate for the second time this year on July 17, cutting disposable income for borrowers.

Southern Hemisphere

Woolworths, which sells brands such as Country Road clothing as well as organic, free-range and specialty foods, completed the purchase of Australia’s oldest department store chain this month in an effort to create a southern-hemisphere retail giant. The company isn’t related to Woolworths Ltd., the supermarket chain that’s Australia’s biggest retailer.

“It’s a solid set of results in a challenging environment,” said Asief Mohamed, chief investment officer of Aeon Investment Management in Cape Town. “The next five years for Woolworths will be crucial” because they will have to integrate the David Jones acquisition and deliver on the targets announced related to that purchase.

The retailer is confident of delivering those revenue and savings targets after having “a look under the hood” at David Jones’s business, Moir said.

The economic environment in South Africa is expected to remain constrained for at least the next two years, the CEO also said.

Woolworths plans to grow its retail space by 9.1 percent for food and 4.8 percent for general merchandise this fiscal year, Financial Director Reeza Isaacs said. The company expects food inflation to moderate slightly, while anticipating a “slight increase” in impairments, he said.

Woolworths’ expansion in Australia won’t be at the expense of growth at its African operations, Moir said.

“We are very committed to Africa,” he said. “We will grow as fast as is feasible.”

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